S&P 500; US Indexes Fundamental Daily Forecast – Soft Fed Rate Forecast Could Be Bullish for Stocks

U.S. stock indexes finished mixed on Tuesday with the Dow and S&P 500 finishing higher and the NASDAQ closing lower. The rally was fueled amid growing optimism that Republican lawmakers would be able to reform the corporate tax system, a move that would be benefit banking stocks. The price action suggests investors have priced in a Fed rate hike, but there are still doubts about the number of rate hikes in 2018.

The Dow posted intraday and closing record highs, led by strong gains in Boeing and Verizon. The S&P 500 also posted intraday and closing all-time highs, with telecommunications and financials underpinning the index.

On Tuesday, in the cash market, the benchmark S&P 500 Index settled at 2664.11, up 4.12 or +0.15%. The blue chip Dow Jones Industrial Average closed at 24504.80, up 118.77 or +0.48% and the tech-based NASDAQ Composite finished at 6861.16, down 13.92 or -0.20%.

Forecast

U.S. futures markets traded lower early Wednesday in reaction to the win by Democrat Doug Jones over Republican Roy Moore. Jones’ victory is seen as a political setback to President Trump. His election cuts the Republican’s Senate majority from 52 to 51 and puts at risk several of Trump’s economic plans.

The Senate election news could pressure U.S. equity markets early in the session, however, later in the day, the emphasis will shift to the Fed’s interest rate decision and monetary policy statement.

The U.S. Federal Reserve has raised its benchmark interest rate two times so far this year and analysts say a third rate hike is almost certain, by 25 basis points to between 1.25 and 1.50 percent, at the conclusion of its two-day meeting at 1900 GMT.

With the rate hike a given, stock investors will be primarily focused on the U.S. central bank’s statement for clues on any further rate increases in 2018. Earlier in the year, the Fed forecast as many as three rate hikes, but concerns over sluggish inflation has led some Fed officials to lower their projections to only two rate hikes.

A cut in the number of rate hikes in 2018 be bullish for stocks because equity investors like lower rates.

In other news, Asian markets closed mostly higher on Wednesday, shrugging off earlier weakness related to Democrat Doug Jones’ win in Alabama.

European markets were down early in the session with investors remaining cautious ahead of monetary policy decisions from the U.S. Federal Reserve, European Central Bank (ECB) and the Bank of England (BOE).